## ppea2021058

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---

### INTRODUCTION
- Purpose: Management Implementation Plan (MIP) proposing actions in response to Board-endorsed recommendations from the Independent Evaluation Office (IEO)’s report on IMF Advice on Capital Flows.
- Status and resources:
  - Staff has begun addressing some IEO recommendations; several MIP actions reflect initiatives already in train.
  - Resource implications expected to be manageable in the near term as actions have mostly been incorporated into departmental work plans and budgets for fiscal year (FY) 2021.
  - Medium-term resource implications to be discussed in the context of the FY 2022–FY 2024 medium-term budget proposals.
- High-level MIP aims:
  - Review the Institutional View for the Liberalization and Management of Capital Flows to bring the Fund’s framework for advice on capital flow policies up to date.
  - Enhance and coordinate a Fund-wide research agenda on capital flow issues, including more research on costs and benefits of capital account and macroprudential measures; deepen work on the Integrated Policy Framework (IPF); explore refinements to analyze capital account-related effects on external balances.
  - Ramp up monitoring and analysis of capital flows, including increased resources for the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), production of indices of capital account openness, and updating the IMF Taxonomy of Capital Flow Management Measures.
  - Strengthen multilateral cooperation on policy issues affecting capital flows, including cooperation with the OECD and work with other international organizations on systemic concerns affecting the global financial system.
- Date of document: May 12, 2021

### BOARD REACTIONS AND OVERALL MIP APPROACH
- The Executive Board and Management broadly welcomed the IEO findings and recommendations; Board discussion date: September 18, 2020.
- Directors welcomed the conclusion that adoption of the Institutional View (“the IV”) and development of other frameworks/tools represented a major advance in providing systematic advice on management of capital flows and capital account liberalization.
- Directors noted that in application the Fund generally followed the IV and other policy frameworks to ensure advice was consistent, tailored, and evenhanded; the Managing Director broadly supported the general thrust of the IEO’s recommendations.
- MIP scope:
  - Presents specific actions, timing, and responsibility for implementation.
  - Some actions already incorporated into departmental work plans and budgets for FY2021.
  - Full implementation intended to help the Fund remain a key partner to membership when designing and implementing policies related to capital flows.

### IEO RECOMMENDATIONS — SUMMARY
- The IEO report made three recommendations:
  1. Revisit the IMF’s Institutional View in light of experience and recent research.
  2. Build up the monitoring and research of capital account issues as part of a sustained Fund-wide medium-term agenda.
  3. Strengthen multilateral cooperation on policy issues affecting capital flows.
- Note: This paper uses “capital account” to also refer to the financial account of the balance of payments.

### RECOMMENDATION 1 — REVISIT THE INSTITUTIONAL VIEW (IV)
- Board reactions:
  - Directors broadly agreed on the need to revisit the IV in light of recent experience and research; core principles of the IV remain valid.
  - Emphasized safeguards against misuse of CFMs and evenhanded application across countries.
  - Divergent views on extent of revisions needed for specific IV elements and role of foreign exchange intervention (FXI).
  - Many Directors thought IV could be more flexible to allow preemptive and more long-lasting use of CFMs on inflows in specific circumstances.
  - Views mixed on allowing use of outflow CFMs outside crisis or near-crisis circumstances, on differences between CFMs, MPMs, and CFM/MPMs, recognizing CFMs’ role in social issues (e.g., housing affordability), and rethinking the definition of CFMs.
  - Many Directors agreed capital account liberalization strategies should consider distributional implications.
- Implementation plan (summary of actions and timing):
  - Staff will undertake a review of the IV informed by IEO recommendations, IPF work, other relevant research, feedback from country authorities and stakeholders, lessons learned in IV implementation, and lessons from the COVID-19 crisis.
  - Informal presentation to the Executive Board to discuss preliminary proposals: July 2021.
  - Staff intends to complete the review in the second half of 2021.
  - IV review objectives:
    - Bring framework for advice on capital flows up to date with theoretical advances, empirical evidence, and lessons from experience.
    - Preserve core IV principles: presumption that capital flows can bring substantial benefits and that CFMs, while useful in certain circumstances, should not substitute for warranted macroeconomic adjustment.
    - Continue aiming to help countries reap benefits of capital flows while managing associated risks to ensure macroeconomic and financial stability.

### RECOMMENDATION 2 — BUILD UP MONITORING AND RESEARCH
- Board reactions:
  - Directors broadly supported strengthening monitoring, analysis, and research of capital account issues as part of a Fund-wide medium-term agenda to maintain the Fund as a thought leader and increase traction of Fund policy advice.
  - Emphasized need for better understanding of long-term costs and benefits of CFMs and MPMs.
  - Some Directors supported developing the Fund’s own indices of capital account openness based on the AREAER.
  - Efforts should be coordinated with other workstreams with attention to resource constraints.
- Implementation plan — IPF operationalization briefing and related analytical work:
  - Staff will brief the Executive Board in May 2021 on progress on operationalization of the IPF, including:
    - (i) Development of metrics to measure financial frictions.
    - (ii) Long-term consequences and side effects of CFMs and other IPF tools.
    - (iii) Other considerations in guiding policy advice not covered in IPF models.
    - (iv) Safeguards to prevent misuse of CFMs and other IPF tools.
    - (v) Interaction between fiscal policy and IPF tools.
    - (vi) Multilateral implications of the use of IPF tools.
  - Metrics work intends to propose measures for:
    - (i) foreign exchange market depth,
    - (ii) exposure to currency mismatches and sudden stop risk,
    - (iii) degree of inflation expectations anchoring.
  - Long-term consequences work will review literature and case studies on effects of CFMs, MPMs, and FXI and explore how usage under the IPF (targeted vs. broad-based, temporary vs. permanent) may modify relationships and scope for complementary policies.
  - “Other considerations” work will distill factors outside IPF models that are important for policy advice.
  - Safeguards work will develop considerations to differentiate appropriate vs. inappropriate deployment of IPF tools, including CFMs, focusing on preventing use to support misaligned exchange rates, substitute for warranted macroeconomic adjustment, allow unsustainable policies to persist, or impede price discovery and competition.
  - Fiscal policy integration:
    - Extend conceptual IPF model to explore substitutability/complementarity of fiscal policy and IPF tools and the role of fiscal policy in the presence of the effective lower bound or fixed exchange rate regimes.
    - Quantitative models to consider how fiscal stance affects monetary stance and use of IPF tools, and how fiscal policy affects vulnerabilities to shocks (e.g., how expansionary fiscal policy may increase chances of a sudden stop).
  - Multilateral implications:
    - Staff developing quantitative models and extending conceptual model to include multiple regions to better understand cross-border transmission of shocks and effects of IPF tools.
- Implementation plan — empirical research and datasets:
  - Executive Board briefing by 2021Q4 on progress made on analytical work on capital flow-related issues as part of a broader, medium-term research agenda and continuation of IPF empirical work.
  - Empirical topics to be examined:
    - (i) Impact of preemptive CFMs on financial stability and growth.
    - (ii) Effects of pre-emptive tightening of inflow CFMs on probability of future inflow surges.
    - (iii) Role of CFMs in preventing build-up of leverage in financial sector.
    - (iv) Impact of long-standing CFMs on probability of crises.
    - (v) Impact of introducing outflow CFMs during crises on sovereign debt ratings.
    - (vi) Interaction of MPMs with other policies, including CFMs.
  - AREAER and staff resources:
    - MCM will allocate by 2021Q2 an additional 1.5 FTE staff to work on maintaining and updating the AREAER database.
    - AREAER database considered an important public good supporting research and construction of indices of capital account openness.
  - Indices of capital account openness:
    - Staff will construct and publish on the IMF external website indices of capital account openness using the AREAER database by end 2021 and end 2023, respectively.
    - By end 2021:
      - Two forms of indices to be available: a binary index based on existing controls and another that also incorporates changes to them over time.
      - Indices will cover the full membership starting from 1999 to the present.
      - Staff plans a working paper with technical appendix to accompany publication; users able to download indices from AREAER website; updated annually with AREAER.
    - By end 2023:
      - Indices of capital account openness accounting also for diversity in type of CFMs.
      - Dataset intended to address weaknesses in traditional binary indices that do not take into account nature of measures.
      - Over time, staff intends to extend dataset to cover all member countries once indices tested.
  - IMF Taxonomy of CFMs:
    - Staff will publish an update of the IMF Taxonomy of CFMs on the IMF external website by end 2021.
    - The Taxonomy contains information about measures assessed by Fund staff as CFMs or CFM/MPMs and discussed in published IMF staff reports since adoption of the IV.
  - EBA model refinements:
    - Staff will explore refinements to capital account-related aspects in the External Balance Assessment (EBA) models and brief the Executive Board by 2022Q1.
    - Current EBA models take capital account into account via net foreign assets and a third-party index of de jure capital account openness; staff will review models and assess usefulness of alternative indicators capturing de jure and de facto capital account openness and financial integration.

### RECOMMENDATION 3 — STRENGTHEN MULTILATERAL COOPERATION
- Recommendation highlights:
  - Sustain efforts to ensure the OECD and IMF work coherently on capital account issues.
  - Address possible tensions between the IV and the Basel III framework.
  - Work with the Financial Stability Board (FSB) and the Bank for International Settlements (BIS) to strengthen monitoring and coordination of macroprudential and capital flow policies, including spillover effects.
  - Step up interactions with the FSB, IOSCO, and national regulators to promote regulation addressing systemic concerns from securities markets.
  - Launch a new initiative to promote coherence between treatment of capital account issues in international trade and investment treaties and the IMF’s approach to capital account issues.
- Board reactions:
  - Directors supported strengthening multilateral cooperation on capital flow policy issues and called for close collaboration with other multilateral organizations, including the OECD, the BIS, and the FSB, with due regard to different mandates, purposes, and memberships.
- Implementation Plan — overview:
  - Research, monitoring and analysis of capital flow-related issues are supported by continued efforts to close data gaps through the Data Gaps Initiative (DGI) in the areas of securities issuance, international banking statistics, portfolio and direct investments, international investment positions, and cross-border exposures of nonbank institutions.
  - MCM produces and disseminates monthly reports that track hard currency debt issuance by emerging market and frontier economies and a quarterly report on capital flows covering non-resident flows, foreign direct investment, other investment flows, and resident flows.
  - MCM also tracks variables including FX interventions, central banks’ asset purchase programs, and market expectations of inflation and monetary policy.
- Strengthening collaboration with OECD and other IFIs:
  - Staff will strengthen collaboration with the OECD on policy issues and research.
    - Continue participation in the OECD’s Advisory Task Force on the Codes (ATFC) on capital account issues, exchanging views on capital flow management policies from perspectives of both the OECD Codes of Liberalization and the IMF’s IV.
    - Invite OECD staff to present their revised Codes of Liberalization at the IMF's Capital Flows Group forum and brief the OECD as the review takes place and on the results once completed.
    - Staff will brief the Executive Board on the key pillars of the IV and the OECD Codes, including remaining differences, and discuss scope and modalities for cooperation on common issues.
    - Organize a joint workshop with the OECD, the Bank of England, and Banque de France to discuss new empirical work by external researchers and those of the organizing institutions on topical capital flow-related issues (following a successful event in 2020).
  - Staff will present a proposal to the Executive Board by 2022Q1 to consider the use of the assessment letter framework to respond to OECD requests for information on macroeconomic and financial stability conditions.
    - The OECD’s amended Codes of Liberalization envisage that the OECD may ask for the Fund’s views "on any questions relating to the balance of payments and the state of the monetary reserves of a [OECD] Member" and on "any questions relating to the liberalization of capital movements."
    - The current assessment letters policy has been used to provide assessments to other IFIs and donors/creditors and would need to be amended to cover the OECD.
- Review of the IV and potential tensions with Basel III:
  - Staff will review the IV to avoid potential inadvertent and unintended tensions between the IV and the Basel III framework.
  - Tensions may arise when implementation of the Basel III reciprocity recommendations results in CFMs on capital outflows imposed outside of crisis circumstances, which would be considered inappropriate under the IV.
  - Example: use of the countercyclical capital buffer (CCyB). The reciprocated CCyB of the home country would be considered as a residency-based outflow CFM and under the IV would only be appropriate if the reciprocating country were in (imminent) crisis circumstances.
  - The IV review will examine cases of potential tensions and propose possible ways of addressing them.
- Non-Bank Financial Institutions (NBFIs) and market-based intermediation:
  - Staff will prepare a Departmental Paper on “Non-Bank Financial Institutions (NBFIs) and Market-Based Intermediation” by 2021Q2.
    - The paper will discuss and analyze policy options to strengthen the resilience-to-stress of NBFIs, including money market funds and open-ended funds.
    - The paper will also discuss arrangements to strengthen liquidity provision in these markets.
    - The paper will support ongoing participation of Fund staff at senior and technical working groups at the FSB and Standard Setting Bodies (SSB).

### ENDORSEMENT OF RECOMMENDATION 3 AND IMPLEMENTATION DETAILS (SECTION 6)
- Board reactions:
  - Directors agreed with the need to strengthen multilateral cooperation on policy issues affecting capital flows to improve coherence of policy frameworks and called for close collaboration with other multilateral organizations.
- Implementation Plan — selected items and sequencing:
  - Staff will brief the OECD as the review of the IV takes place and once completed; staff will brief the Executive Board on the IV and the OECD Codes of Liberalization.
  - Staff will invite OECD staff to present their revised Codes of Liberalization at the IMF’s Capital Flows Group forum (2021Q2) and hold jointly with the OECD a workshop on capital flow-related research (by 2022Q4).
  - Staff will present a proposal to consider the use of the assessment letter framework to respond to OECD requests for information (Board paper by 2022Q1).
  - Staff will address inadvertent and unintended tensions between the IV and the Basel III framework as part of the IV review.
  - Staff will prepare a paper on “NBFIs and Market-Based Intermediation” (Departmental Paper by 2021Q2).

### RESOURCE AND ADMINISTRATIVE DETAILS
- Resource implications:
  - New initiatives outlined are expected to have manageable resource implications in the near term.
  - Several actions proposed in the MIP are already being incorporated into departmental work plans and the budget for FY2021.
  - Beyond the 1.5 FTE to support the AREAER work, additional costs resulting from the MIP are expected to be limited in the near term.
  - Budget implications for the medium term will be discussed in the context of FY2022–24 budget proposals as work progresses.
- Administrative and preparation details:
  - Approved by: Uma Ramakrishnan and Ratna Sahay
  - Prepared by a staff team led by Annamaria Kokenyne Ivanics (MCM) and Pablo Morra (SPR) and comprising Juan Manuel Jauregui and Marco Rodriguez Waldo (SPR), and Thorvardur Olafsson and Gurnain Pasricha (MCM), under the guidance of Martin Kaufman and Delia Velculescu (SPR).

*Source: MIP IN RESPONSE TO IEO EVALUATION—IMF ADVICE ON CAPITAL FLOWS, Executive Summary (May 12, 2021).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### INTRODUCTION
- Purpose: Management Implementation Plan (MIP) proposing actions in response to Board-endorsed recommendations from the Independent Evaluation Office (IEO)’s report on IMF Advice on Capital Flows.
- Status and resources:
  - Staff has begun addressing some IEO recommendations; several MIP actions reflect initiatives already in train.
  - Resource implications expected to be manageable in the near term as actions have mostly been incorporated into departmental work plans and budgets for fiscal year (FY) 2021.
  - Medium-term resource implications to be discussed in the context of the FY 2022–FY 2024 medium-term budget proposals.
- MIP aims (high level):
  - Bring the Fund’s framework for advice on capital flow policies up to date by reviewing the Institutional View for the Liberalization and Management of Capital Flows.
  - Enhance and coordinate a Fund-wide research agenda on capital flow issues, including more research on costs and benefits of capital account and macroprudential measures, deepen work on the Integrated Policy Framework (IPF), and explore refinements to analyze capital account-related effects on external balances.
  - Ramp up monitoring and analysis of capital flows, including increased resources for the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), production of indices of capital account openness, and updating the IMF Taxonomy of Capital Flow Management Measures.
  - Strengthen multilateral cooperation on policy issues affecting capital flows, including deeper cooperation with the OECD and work with other international organizations on systemic concerns affecting the global financial system.
- Date of document: May 12, 2021

### BOARD REACTIONS AND OVERALL MIP APPROACH
- Board and Management responses:
  - The Executive Board and Management broadly welcomed the IEO findings and recommendations.
  - Board discussion date: September 18, 2020.
  - Directors welcomed the conclusion that adoption of the Institutional View (“the IV”) and development of other frameworks/tools represented a major advance in providing systematic advice on management of capital flows and capital account liberalization.
  - Directors noted that in application the Fund generally followed the IV and other policy frameworks to ensure advice was consistent, tailored, and evenhanded; the Managing Director broadly supported the general thrust of the IEO’s recommendations.
- MIP scope:
  - Presents specific actions, timing, and responsibility for implementation.
  - Some actions already incorporated into departmental work plans and budgets for FY2021.
  - Full implementation intended to help the Fund remain a key partner to membership when designing and implementing policies related to capital flows.

### IEO RECOMMENDATIONS — SUMMARY
- The IEO report made three recommendations to raise the value added and traction of IMF advice on capital flows:
  1. Revisit the IMF’s Institutional View in light of experience and recent research.
  2. Build up the monitoring and research of capital account issues as part of a sustained Fund-wide medium-term agenda.
  3. Strengthen multilateral cooperation on policy issues affecting capital flows.
- Note: This paper uses “capital account” to also refer to the financial account of the balance of payments.

### RECOMMENDATION 1 — REVISIT THE INSTITUTIONAL VIEW (IV)
- Board reactions:
  - Directors broadly agreed on the need to revisit the IV in light of recent experience and research; core principles of the IV remain valid.
  - Emphasized safeguards against misuse of CFMs and evenhanded application across countries.
  - Divergent views on extent of revisions needed for specific IV elements and role of foreign exchange intervention (FXI).
  - Many Directors thought IV could be more flexible to allow preemptive and more long-lasting use of CFMs on inflows in specific circumstances.
  - Views mixed on allowing use of outflow CFMs outside crisis or near-crisis circumstances, on differences between CFMs, MPMs, and CFM/MPMs, recognizing CFMs’ role in social issues (e.g., housing affordability), and rethinking the definition of CFMs.
  - Many Directors agreed capital account liberalization strategies should consider distributional implications.
- Implementation plan (summary of actions and timing):
  - Staff will undertake a review of the IV informed by:
    - IEO recommendations, IPF work, other relevant research, feedback from country authorities and stakeholders, lessons learned in IV implementation, and lessons from the COVID-19 crisis.
  - Informal presentation to the Executive Board to discuss preliminary proposals: July 2021.
  - Staff intends to complete the review in the second half of 2021.
  - IV review objectives:
    - Bring framework for advice on capital flows up to date with theoretical advances, empirical evidence, and lessons from experience.
    - Preserve core IV principles: presumption that capital flows can bring substantial benefits and that CFMs, while useful in certain circumstances, should not substitute for warranted macroeconomic adjustment.
    - Continue aiming to help countries reap benefits of capital flows while managing associated risks to ensure macroeconomic and financial stability.

### RECOMMENDATION 2 — BUILD UP MONITORING AND RESEARCH
- Board reactions:
  - Directors broadly supported strengthening monitoring, analysis, and research of capital account issues as part of a Fund-wide medium-term agenda to maintain the Fund as a thought leader and increase traction of Fund policy advice.
  - Emphasized need for better understanding of long-term costs and benefits of CFMs and MPMs.
  - Some Directors supported developing the Fund’s own indices of capital account openness based on the AREAER.
  - Efforts should be coordinated with other workstreams with attention to resource constraints.
- Implementation plan — IPF operationalization briefing and related analytical work:
  - Staff will brief the Executive Board in May 2021 on progress on operationalization of the IPF, including:
    - (i) Development of metrics to measure financial frictions.
    - (ii) Long-term consequences and side effects of CFMs and other IPF tools.
    - (iii) Other considerations in guiding policy advice not covered in IPF models.
    - (iv) Safeguards to prevent misuse of CFMs and other IPF tools.
    - (v) Interaction between fiscal policy and IPF tools.
    - (vi) Multilateral implications of the use of IPF tools.
  - Metrics work intends to propose measures for:
    - (i) foreign exchange market depth,
    - (ii) exposure to currency mismatches and sudden stop risk,
    - (iii) degree of inflation expectations anchoring.
  - Long-term consequences work will review literature and case studies on longer-term effects of CFMs, MPMs, and FXI, summarizing empirical evidence and exploring how usage under the IPF (targeted vs. broad-based, temporary vs. permanent) may modify relationships and scope for complementary policies.
  - “Other considerations” work will distill factors outside IPF models that are important for policy advice, informed by theoretical literature, empirical findings, and staff engagement with country authorities.
  - Safeguards work will develop considerations to differentiate appropriate vs. inappropriate deployment of IPF tools, including CFMs, focusing on preventing use to support misaligned exchange rates, substitute for warranted macroeconomic adjustment, allow unsustainable policies to persist, or impede price discovery and competition.
  - Fiscal policy integration:
    - Conceptual IPF model to be extended to explore substitutability/complementarity of fiscal policy and IPF tools, role of fiscal policy in presence of the effective lower bound or fixed exchange rate regimes.
    - Quantitative models to consider how fiscal stance affects monetary stance and use of IPF tools, and how fiscal policy affects vulnerabilities to shocks (e.g., how expansionary fiscal policy may increase chances of a sudden stop).
  - Multilateral implications:
    - Staff studying multilateral implications by developing quantitative models and extending conceptual model to include multiple regions to better understand cross-border transmission of shocks and effects of IPF tools.
- Implementation plan — empirical research and datasets:
  - Executive Board briefing by 2021Q4 on progress made on analytical work on capital flow-related issues as part of a broader, medium-term research agenda and continuation of IPF empirical work.
  - Empirical topics to be examined regarding interplay between capital flows, CFMs, and crises:
    - (i) Impact of preemptive CFMs on financial stability and growth.
    - (ii) Effects of pre-emptive tightening of inflow CFMs on probability of future inflow surges.
    - (iii) Role of CFMs in preventing build-up of leverage in financial sector.
    - (iv) Impact of long-standing CFMs on probability of crises.
    - (v) Impact of introducing outflow CFMs during crises on sovereign debt ratings.
    - (vi) Interaction of MPMs with other policies, including CFMs.
  - AREAER and staff resources:
    - MCM will allocate by 2021Q2 an additional 1.5 FTE staff to work on maintaining and updating the AREAER database.
    - AREAER database considered an important public good supporting research and construction of indices of capital account openness.
  - Indices of capital account openness:
    - Staff will construct and publish on the IMF external website indices of capital account openness using the AREAER database by end 2021 and end 2023, respectively.
    - By end 2021:
      - Two forms of indices to be available: a binary index based on existing controls and another that also incorporates changes to them over time.
      - Indices will cover the full membership starting from 1999 to the present.
      - Staff plans a working paper with technical appendix to accompany publication; users able to download indices from AREAER website; updated annually with AREAER.
    - By end 2023:
      - Indices of capital account openness accounting also for diversity in type of CFMs.
      - Dataset intended to address weaknesses in traditional binary indices that do not take into account nature of measures.
      - Over time, staff intends to extend dataset to cover all member countries once indices tested.
  - IMF Taxonomy of CFMs:
    - Staff will publish an update of the IMF Taxonomy of CFMs on the IMF external website by end 2021.
    - The Taxonomy contains information about measures assessed by Fund staff as CFMs or CFM/MPMs and discussed in published IMF staff reports since adoption of the IV; serves as a reference for types of measures introduced or adjusted by countries to manage and liberalize capital flows.
  - EBA model refinements:
    - Staff will explore refinements to capital account-related aspects in the External Balance Assessment (EBA) models and brief the Executive Board by 2022Q1.
    - Current EBA models take capital account into account via net foreign assets and a third-party index of de jure capital account openness; staff will review models and assess usefulness of alternative indicators capturing de jure and de facto capital account openness and financial integration.

### RECOMMENDATION 3 — STRENGTHEN MULTILATERAL COOPERATION
- Recommendation highlights (from Box 1):
  - Sustain efforts to ensure the OECD and IMF work coherently on capital account issues.
  - Address possible tensions between the IV and the Basel III framework.
  - Work with the Financial Stability Board (FSB) and the Bank for International Settlements (BIS) to strengthen monitoring and coordination of macroprudential and capital flow policies, including spillover effects.
  - Step up interactions with the FSB, IOSCO, and national regulators to promote regulation addressing systemic concerns from securities markets.
  - Launch a new initiative to promote coherence between treatment of capital account issues in international trade and investment treaties and the IMF’s approach to capital account issues.
- Board reactions and implementation (summary):
  - Directors supported strengthening multilateral cooperation on capital flow policy issues.
  - Implementation actions and further details are included in Annex I (IEO Evaluation of IMF Advice on Capital Flows: Recommendations, Board Responses, and Proposed Follow-up).

### ADMINISTRATIVE, PREPARATION, AND STAFF DETAILS
- Approved by: Uma Ramakrishnan and Ratna Sahay
- Prepared by a staff team led by Annamaria Kokenyne Ivanics (MCM) and Pablo Morra (SPR) and comprising Juan Manuel Jauregui and Marco Rodriguez Waldo (SPR), and Thorvardur Olafsson and Gurnain Pasricha (MCM), under the guidance of Martin Kaufman and Delia Velculescu (SPR).

*Source: MIP IN RESPONSE TO IEO EVALUATION—IMF ADVICE ON CAPITAL FLOWS, Executive Summary (May 12, 2021).*

### 6.      The Executive Board endorsed recommendation 3 and some actions to implement it

### 6.      The Executive Board endorsed recommendation 3 and some actions to implement it

### Board reactions
- Directors agreed with the need to strengthen multilateral cooperation on policy issues affecting capital flows to improve coherence of policy frameworks.
- Directors called for close collaboration with other multilateral organizations, including the OECD, the BIS, and the FSB, to promote a consistent and comprehensive approach to the handling of capital flows, with due regard to their different mandates, purposes, and memberships.

### Implementation Plan — overview
- Research, monitoring and analysis of capital flow-related issues are supported by continued efforts to close data gaps through the Data Gaps Initiative (DGI) in the areas of securities issuance, international banking statistics, portfolio and direct investments, international investment positions, and cross-border exposures of nonbank institutions.
- MCM produces and disseminates monthly reports that track hard currency debt issuance by emerging market and frontier economies and a quarterly report on capital flows covering non-resident flows, foreign direct investment, other investment flows, and resident flows.
- MCM also tracks variables including FX interventions, central banks’ asset purchase programs, and market expectations of inflation and monetary policy.

### Strengthening collaboration with OECD and other IFIs
- Staff will strengthen collaboration with the OECD on policy issues and research.
  - Staff will continue to participate actively in the work of the OECD’s Advisory Task Force on the Codes (ATFC) on capital account issues, exchanging views on capital flow management policies from the vantage points of both the OECD Codes of Liberalization and the IMF’s IV.
  - To facilitate greater understanding, staff have invited OECD staff to present their revised Codes of Liberalization at the IMF's Capital Flows Group forum and will brief the OECD as the review takes place and on the results of the review once it is completed.
  - Subsequently, staff will brief the Executive Board on the key pillars of the IV and the OECD Codes, including remaining differences, and discuss the scope and modalities for cooperation on common issues.
  - Following a successful event in 2020, staff will organize a joint workshop with the OECD, the Bank of England, and Banque de France to discuss new empirical work by external researchers and those of the organizing institutions on topical capital flow-related issues.
- Staff will present a proposal to the Executive Board by 2022Q1 to consider the use of the assessment letter framework to respond to OECD requests for information on the macroeconomic and financial stability conditions of countries.
  - The OECD’s amended Codes of Liberalization envisage that the OECD may ask for the Fund’s views "on any questions relating to the balance of payments and the state of the monetary reserves of a [OECD] Member" and on "any questions relating to the liberalization of capital movements."
  - The current assessment letters policy has been used to provide assessments to other IFIs and donors/creditors and would need to be amended to cover the OECD.

### Review of the Institutional View (IV) and potential tensions with Basel III
- Staff will review the IV to avoid potential inadvertent and unintended tensions between the IV and the Basel III framework.
  - Tensions may arise when implementation of the Basel III reciprocity recommendations results in CFMs on capital outflows imposed outside of crisis circumstances, which would be considered inappropriate under the IV.
  - Example: use of the countercyclical capital buffer (CCyB). Host authorities set buffer requirements applying to credit exposures held by local entities; home country reciprocates to ensure banks calculate buffer requirements based on geographic location of the exposure. The reciprocated CCyB of the home country would be considered as a residency-based outflow CFM and under the IV would only be appropriate if the reciprocating country were in (imminent) crisis circumstances.
  - The review of the IV will examine cases of potential tensions and propose possible ways of addressing them.

### Non-Bank Financial Institutions (NBFIs) and market-based intermediation
- Staff will prepare a Departmental Paper on “Non-Bank Financial Institutions (NBFIs) and Market-Based Intermediation” by 2021Q2.
  - The paper will discuss and analyze policy options to strengthen the resilience-to-stress of NBFIs, including money market funds and open-ended funds, that play a key role in core financial markets and market-based intermediation of capital flows across the Fund's membership.
  - The paper will also discuss arrangements to strengthen liquidity provision in these markets.
  - The paper will support ongoing participation of Fund staff at senior and technical working groups at the FSB and Standard Setting Bodies (SSB).

### Resource implications
- New initiatives outlined are expected to have manageable resource implications in the near term.
- Several actions proposed in the MIP are already being incorporated into departmental work plans and the budget for FY2021.
- Beyond the 1.5 FTE to support the AREAER work, additional costs resulting from the MIP are expected to be limited in the near term.
- Budget implications for the medium term will be discussed in the context of FY2022–24 budget proposals as work progresses.

### Annex I — Selected follow-up plan items relevant to Recommendation 3
- Staff will brief the OECD as the review of the IV takes place and once completed; staff will brief the Executive Board on the IV and the OECD Codes of Liberalization.
- Staff will invite OECD staff to present their revised Codes of Liberalization at the IMF’s Capital Flows Group forum (2021Q2) and hold jointly with the OECD a workshop on capital flow-related research (by 2022Q4).
- Staff will present a proposal to consider the use of the assessment letter framework to respond to OECD requests for information (Board paper by 2022Q1).
- Staff will address inadvertent and unintended tensions between the IV and the Basel III framework as part of the review of the IV.
- Staff will prepare a paper on “NBFIs and Market-Based Intermediation” (Departmental Paper by 2021Q2).

*Source: ppea2021058 - 6.      The Executive Board endorsed recommendation 3 and some actions to implement it*

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_Source: https://www.imf.org/-/media/files/publications/pp/2021/english/ppea2021058.pdf_